“I don’t need to see markets drop 400 points [to be convinced],” Pelosi said during a press conference at the Capitol, “but Republicans may need to see markets drop 400 points.”Pelosi noted that it took a stock market free-fall, in late 2008, to convince House lawmakers to rally behind the Troubled Asset Relief Program (TARP), which President George W. Bush had championed to stabilize a teetering Wall Street.

When the House shot down the initial TARP bill, the Dow fell 777 points. Four days later, the House passed the bill, with 57 members switching their votes to yes.

“We voted for the TARP, not because we approved of how we got there, or the cost that it would be, but because it had to be done,” Pelosi said. “And here we are again, so we’ll see what sense of responsibility people have about doing [the debt-ceiling].”

Adding to the urgency, Moody’s Investors Service, the powerful credit-rating agency, warned Wednesday that it might downgrade the United States’s triple-A rating if Congress doesn’t raise the debt ceiling within the “coming weeks.”

The Pentagon has admitted it suffered a major cyber attack in which thousands of files were taken by foreign hackers.

Deputy Defence Secretary William Lynn said that in a March attack and other breaches, hackers had taken information on "our most sensitive systems".

The admission came as the Pentagon rolled out a strategy for strengthening US cyber capabilities and addressing threats and attacks in cyberspace.

The plan would treat cyberspace in a similar manner to land, air and sea.

"In the 21st Century, bits and bytes can be as threatening as bullets and bombs," Mr Lynn said, unveiling the plan.

In a speech at National Defense University in Washington, Mr Lynn said about 24,000 files containing Pentagon data were stolen from a defence industry computer network in March, marking one of the largest cyber attacks in US history.Extracting files

He said at least one attack - a previously revealed 2008 penetration of classified computer systems - had come from a foreign intelligence service, and in an interview ahead of the speech said the Pentagon believed the March attack had been perpetrated by a foreign government.

Previous cyber attacks have been blamed on China or Russia.

Keystrokes originating in one country can impact the other side of the globe in the blink of an eye”William LynnDeputy Defense Secretary

"We have a pretty good idea" who did it, he told the Associated Press news agency.

In his speech, he said some of the stolen data was "mundane, like the specifications for small parts of tanks, airplanes, and submarines.

"But a great deal of it concerns our most sensitive systems, including aircraft avionics, surveillance technologies, satellite communications systems, and network security protocols," he said.

Mr Lynn said cyber attacks in the future would not only focus on stealing data but also damaging US defences or even causing deaths.

He added that virtual intruders have previously tried to extract files related to missile tracking systems and the Joint Strike Fighter.

Though nations like China and Russia have been blamed for many previous cyber attacks, the Pentagon fears terrorist groups could eventually strike American computer networks and steal data.

"Keystrokes originating in one country can impact the other side of the globe in the blink of an eye," Mr Lynn said.
BBC

While much of the U.S. was cooler Thursday ahead of another heat wave, temperatures were still around triple digits in Oklahoma and Texas — where ways to beat the heat included dumping 2,400 pounds of ice into a pool with hundreds of people.

"The stage is being set for a massive heat wave to develop into next week as a large area of high pressure is anticipated to circulate hot and humid air over much of the central and eastern U.S.," the National Weather Service warned. "Maximum heat index values of at least 100°F are likely across much of this area by the middle of next week, with heat index values in excess of 110°F possible over portions of these areas."

"The big story for the coming weekend will be the building heat," added Jim Keeney, a National Weather Service meteorologist. "It looks like it's going to be a long-term heat wave."

In the thick of the heat wave is Oklahoma where Gov. Mary Fallin asked Oklahomans to pray for rain this Sunday.

"The power of prayer is a wonderful thing, and I would ask every Oklahoman to look to a greater power this weekend and ask for rain," Fallin said in a news release on Thursday.

Uzi Rubin says Tehran's new ballistic missile Fateh-110 that has been converted to be used against ships is "a significant breakthrough."Iran has overtaken North Korea in the development of long-range sophisticated missiles, as demonstrated by the recent launch of a number of new missiles during military maneuvers in Iran, Uzi Rubin, the former head of Israel’s Homa Missile Defense Agency, said on Thursday.

According to Rubin, during the Great Prophet War Games held earlier this month, Iran displayed a new ballistic missile that has been converted to be used against ships. This is considered a significant breakthrough since most anti-ship missiles are cruise missiles that fly parallel to the water’s surface while this missile takes a ballistic course toward its target.

Real M1 deposits in Italy have fallen at an annual rate of 7pc over the last six months, faster than during the build-up to the great recession in 2008," said Simon Ward from Henderson Global Investors.

Such a dramatic contraction of M1 cash and overnight deposits typically heralds a slump six to 12 months later. Italy's economy is already vulnerable – industrial output fell 0.6pc in May, and the forward looking PMI surveys have dropped below the recession line.

"What is disturbing is that the numbers in the core eurozone have started to deteriorate sharply as well. Central banks normally back-pedal or reverse policy when M1 starts to fall, so it is amazing that the European Central Bank went ahead with a rate rise this month," Mr Ward said.

Italy is not a high-debt nation. Italian households are frugal by Spanish and UK standards. However, Italy has a toxic trifecta of problems that affect long-term debt dynamics: a public debt stock of €1.8 trillion or 120pc of GDP; rising interest rates; and economic stagnation. It is the interplay of these elements that has set off flight from Italian bonds.

Italy has to roll over or raise €1 trillion over the next five years, with a big spike as soon as August. "Any new issuance will be above the average rate. That is the real cause of the destructive market action," said Paul Schofield from Cititgroup.

The news came as Portugal said it will see its economy shrink 2.3pc this year and 1.7pc in 2012, with a recovery only coming in 2013.

"The economic recovery will only occur in 2013," Finance Minister Vitor Gaspar said.

Speaking to senators on Capitol Hill, Mr Bernanke played down the immediate impact on the US of festering problems in Greece, Ireland and Portugal, "because the three countries... are really a very small part of the European continent and the European economy. .

But he acknowledged that, the US's own issues aside, eurozone problems have been causing "a good bit of anxiety in markets."

"That's been affecting our economy, both last summer and now recently as well."

Mr Bernanke said that the exposure of US financial institutions, mutual funds and money market funds to the three countries "are quite small and manageable".

But "were there to be a significant deterioration in conditions in Europe, we would see a general increase in risk aversion, declining asset prices, a lot of volatility in markets", he told senators.

"And we would suffer from that more general financial situation than we would from the direct exposures to those sovereign countries," Mr Bernanke said.

Meanwhile, the International Monetary Fund has blamed policymaking delays and infighting in the European Union - particularly over whether to make private bondholders share in losses - for needlessly worsening the eurozone debt crisis.

It is mind boggling that people would consider buying 10-year U.S. Treasurys with yields trading at around 3 percent, said Marc Faber, the author of the closely-watched Gloom, Boom and Doom report in an interview with CNBC on Thursday.

“I don’t think the U.S. will default in terms of not paying the interest on its debt. They will though default via a falling dollar as Bernanke begins printing more money,” Faber said.

His comments follow statements by Ben Bernanke on Wednesday in which the Federal Reserve chairman indicated he would consider more extraordinary measures if U.S. economic conditions get worse.

On Wednesday, Moody’swarned it could downgrade America’s credit rating as talks over the debt ceiling became increasingly acrimonious on Capitol Hill.

“They will get an agreement or fiddle around with the debt ceiling,” Faber said. “I disagree with the bond bulls that are basing their case on a deflationary environment. In such an outcome tax revenues would collapse and stocks would fall heavily.”

Faber predicted that 1,370 was the high for the S&P 500 index in 2011 and told CNBC that if stocks fall another 10 percent or 20 percent from here, another round of quantitative easing is inevitable.

“The risk is not to hold gold. Whilst there is the potential for 10 percent downside in the short term over the next five to ten years the gains will be big. Or put another way, the purchasing power of paper money will fall," Faber said.

“Cash is very risky asset except in times of major market corrections,” he added.

The tests act as a financial healthcheck to ensure banks have sufficient capital to deal with difficult economic developments and publicly identify weak banks so national regulators can push them to strengthen their finances.

Regulators also hope the tests will persuade investors that the EU is coming clean about the extent of its banks' problems. Experts believe between five and 15 banks could fall short in today's results, but no large banks are expected to fail.

The EBA has said that the latest tests would be tougher than last year's when only seven out of 91 banks failed. The regulator has analysed some 3,000 pieces of information - as opposed to 149 in 2010 - including how many bonds each bank holds from the financially troubled governments of Greece, Portugal and Ireland.

Banks that fail and those who scrape through will be expected to act on the results and plug capital shortfalls. Some who fail to raise enough capital may have to turn to their own governments.

On Wednesday, German bank Helaba said it expected to pull out of the tests, complaining that the EBA's decision not to accept some of its hybrid capital made the difference between passing and failing.

The Liberal Democrat Sharon Bowles, chairman of the European Parliament's influential Economic and Monetary Policy Committee, accused German banks of covering up results which show they are in urgent need of recapitalisation.

The senior MEP said the results were being manipulated by financial institutions who think "they can fool the market". Germany's "crisis-denial" and its failure to own up to its own difficulties was preventing it from rescuing the European project, she added.

"The banking stress tests will be cathartic for the eurozone sovereign crisis, but not if those seeking secrecy think they can fool the market," Mrs Bowles said. "In their latest round of crisis-denial, German banks are lining up to try and hide what any decent analyst already knows, that there are significant cases of undercapitalisation. Publication of the stress tests will not bring Germany and its banks down, but denial of telling things as they really are lies at the heart of Germany's failure to rescue the euro project."

Iraq's parliament speaker, who is on a visit to Washington, will query American officials about $17 billion in missing oil money, a lawmaker in Baghdad said on Wednesday.

Osama al-Nujaifi, who left for Washington on Tuesday, will bring up the question of the missing billions, which have been under investigation for years, said Baha al-Araji, head of parliament's anti-graft committee.

Last week, US officials acknowledged that $6.6 billion in Iraqi reconstruction funds had disappeared. Iraq says $17 billion is missing, and was stolen by corrupt US institutions.

"Nujaifi is visiting the United States to discuss several issues, including the missing funds," Araji said.

"We contacted the US forces in Iraq (about this issue) but we didn't receive an answer," he said, adding that Baghdad had approached the United Nations in Iraq to help trace the money. The cash was from the proceeds of Iraqi oil sales after the 2003 US-led invasion. It was placed in the Development Fund for Iraq (DFI), but went missing in 2004, when US envoy Paul Bremer's Coalition Provisional Authority (CPA) was governing Iraq and managing the fund.

The integrity committee said it had sent a letter to the UN office in Baghdad, but a spokesperson for the United Nations Assistance Mission in Iraq (UNAMI) said no such document had been received. It was a 2003 UN Security Council resolution that authorised the transfer of the vanished Iraqi oil money from the US to Iraq.

In the May 11 letter addressed to the UN in Iraq and seen by AFP, the integrity committee accused US institutions working under the CPA of stealing the money."The US institutions (occupation forces) working in Iraq committed a financial crime, stealing the money of the Iraqi people that was allocated for the development of Iraq," said the letter. "The sum was $17 billion," it said.

Iraqi government spokesman Ali Dabbagh said in a statement that the issue of the missing billions is being discussed at the highest levels in Baghdad.

"We call on US institutions linked to the issue to guarantee the rights of Iraq and hand over all accounts (from that period) to Iraqi auditors," Dabbagh said.The US embassy in Baghdad said it was working with the Iraqi government to account for the funds.

"The US and Iraqi governments share a commitment to transparency and accountability with regards to the history of the Development Fund for Iraq," said embassy spokesman David Ranz. "Our two governments are working together, and with the Special Inspector General for Iraq Reconstruction, to account for all of the funds expended from DFI to benefit the Iraqi people." "The issue is not about returning the money," said hardline MP Jawad al-Shehaili.

"It's about revealing that the US side did nothing for Iraq. It gave from the right hand and stole from the left," said Shehaili, who is a member of an alliance led by the radical and anti-American Shiite cleric Moqtada al-Sadr. Earlier this month, Iraqi authorities asked for visiting US congressman Dana Rohrabacher to leave the country after he called for Baghdad to repay part of the money Washington had spent on Iraq since the 2003 invasion.